Canadian Wealth Secrets Cash Damming Explained: The ‘Older Sibling’ of the Smith Maneuver for Business Owners
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Feb 11, 2026 Business owners and rental landlords learn how to redirect idle cash to speed up mortgage payoff while creating tax-deductible interest. The hosts compare cash damming to the Smith Manoeuvre and explain when the strategy fits incorporated versus personal income. They cover practical constraints like mortgage rules, HELOC timing, interest-rate differences, and how to start conservatively.
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When Cash Damming Suits Sole Proprietors And Rentals
- Cash damming is especially relevant for sole proprietors and personally held rental properties where income flows into personal accounts.
- Jon Orr notes incorporated holding companies with retained earnings are less suited, so this tactic often delays the need to incorporate.
Smith Maneuver Turns Home Interest Into Deductible Interest
- The Smith Maneuver converts non-deductible primary mortgage interest into deductible investment interest by borrowing to invest and using that interest as a business/investment expense.
- Kyle Pearce explains that borrowing for an income-generating purpose (even unsecured) makes the interest tax-deductible under Canadian rules, enabling the maneuver's core benefit.
Prepay Mortgage Then Redraw To Create Deductible Interest
- Use incoming rental or business cash to prepay your primary mortgage, then redraw from a HELOC to fund those business expenses so interest becomes deductible.
- Kyle Pearce recommends this reuse of the same dollar so net debt stays similar while creating tax-deductible interest on borrowed funds.